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Living the FATCA life in Africa: New U.S. tax regulations add to burden of compliance on financial institutions across Africa

Posted on 21 May 2013 by Eugene Skrynnyk

Eugene Skrynnyk

Eugene Skrynnyk (CIPM, MILE, BComm) is a senior manager and specialist for the asset management industry in the Africa Sub-Area at Ernst & Young in Cape Town, South Africa.

Eugene Skrynnyk is the Ernst & Young Senior Manager and specialist for the asset management industry in the Africa Sub-Area.

Eugene holds a Certificate in Investment Performance Measurement (CIPM), Master of International Law and Economics (MILE) and Bachelor of Commerce and Finance (B.Comm.).

 

When the U.S. Department of the Treasury (“Treasury”) and Internal Revenue Service (“IRS”) issued final Foreign Account Tax Compliance Act (“FATCA”) regulations in January of this year, there was a sigh of relief that the financial services industry in Africa could begin to digest FATCA’s obligations. However, achieving FATCA compliance remains a challenge for banks operating across Africa.

FATCA is already law in the U.S. but negotiations are under way to enshrine it in national law of countries around the world via intergovernmental agreements (“IGAs”) with the U.S. While a variety of African jurisdictions will each face unique obstacles with FATCA compliance, many in the industry share a general unease with FATCA’s scope, as well as scepticism that FATCA’s rewards (an estimated US$1 billion in additional tax revenue annually) justify its expenses. Generally, FATCA attempts to combat U.S. tax evasion by requiring that non-U.S. financial institutions report the identities of U.S. shareholders or customers, or otherwise face a 30% withholding tax on their U.S. source income. Overwhelmingly, FATCA compliance obligations apply even where there is very little risk of U.S. tax evasion and it impacts all payers, including foreign payers of “withholdable payments” made to any foreign entities affecting deposit accounts, custody and investments.

General issues in Africa

Concerns about privacy abound. FATCA requires financial institutions to report to the IRS certain information about U.S. persons. For this reason, IGAs are being put in place so that institutions could instead report information to their local tax authority rather than the IRS. In some jurisdictions, investment funds and insurance companies are permitted to disclose information with client consent. In other jurisdictions, such disclosure is prohibited without further changes to domestic law. The process to make necessary changes locally involves time and effort.

Cultural differences in Africa need to be considered. In certain situations FATCA requires that financial institutions ask a customer who was born in the United States to submit documents explaining why the customer abandoned U.S. citizenship or did not obtain it at birth. African financial institutions never pose such a delicate and private question to their customers. Even apparently straight-forward requirements may pose challenges; for example, FATCA requires that customers make representations about their identities “under penalty of perjury” in certain situations. Few countries have a custom of making legal oaths, so it would not be surprising if African customers will be reluctant to give them.

FATCA contains partial exemptions (i.e., “deemed compliance”) and also exceptions for certain financial institutions and products that are less likely to be used by U.S. tax evaders. It still has to be seen to what extent these exemptions have utility for financial institutions in Africa. For example, the regulations include an exemption for retirement funds and also partially exempt “restricted funds” — funds that prohibit investment by U.S. persons. Although many non-U.S. funds have long restricted investment by U.S. persons because of the U.S. federal securities laws, this exemption could be less useful than it first appears. It should be pointed out that the exemption also requires that funds be sold exclusively to limited categories of FATCA-compliant or exempt institutions and distributors. These categories are themselves difficult for African institutions to qualify for. For example, a restricted fund may sell to certain distributors who agree not to sell to U.S. persons (“restricted distributors”). But restricted distributors must operate solely in the country of their incorporation, a true obstacle in smaller markets where many distributors must operate regionally to attain scale.

Other permitted distribution channels for restricted funds are “local banks,” which are not allowed to have any operations outside of their jurisdiction of incorporation and may not advertise the availability of U.S. dollar denominated investments.

Challenges and lessons learned – the African perspective

Financial institutions will have to consider what steps to take to prepare for FATCA compliance and take into account other FATCA obligations, such as account due diligence and withholding against non-compliant U.S. accountholders and/or financial institutions.

The core of FATCA is the process of reviewing customer records to search for “U.S. indicia” — that is, evidence that a customer might be a U.S. taxpayer. Under certain circumstances, FATCA requires financial institutions to look through their customers and counterparties’ ownership to find “substantial U.S. owners” (generally, certain U.S. persons holding more than 10% of an entity). In many countries the existing anti-money laundering legislation generally requires that financial institutions look through entities only when there is a 20% or 25% owner, leaving a gap between information that may be needed for FATCA compliance and existing procedures. Even how to deal with non-FATCA compliant financial institutions and whether to completely disengage business ties with them, remains open.

The following is an outline of some of the lessons learned in approaching FATCA compliance and the considerations financial institutions should make:

Focus on reducing the problem

Reducing the problem through the analysis and filtering of legal entities, products, customer types, distribution channels and account values, which may be prudently de-scoped, can enable financial institutions to address their distinct challenges and to identify areas of significant impact across their businesses. This quickly scopes the problem areas and focuses the resource and budget effort to where it is most necessary.

Select the most optimal design solution

FATCA legislation is complex and comprehensive as it attempts to counter various potential approaches to evade taxes. Therefore, understanding the complexities of FATCA and distilling its key implications is crucial in formulating a well rounded, easily executable FATCA compliance programme in the limited time left.

Selecting an option for compliance is dependent on the nature of the business and the impact of FATCA on the financial institution. However, due to compliance time constraints and the number of changes required by financial institutions, the solution design may well require tactical solutions with minimal business impact and investment. This will allow financial institutions to achieve compliance by applying low cost ‘work arounds’ and process changes. Strategic and long-term solutions can be better planned and phased-in with less disruption to the financial institution thereafter.

Concentrate on critical activities for 2014

FATCA has phased timelines, which run from 2014 to 2017 and beyond. By focusing on the “must-do” activities, which require compliance as of 1 January 2014 – such as appointing a Responsible Officer, registering with the IRS, and addressing new client on-boarding processes and systems – financial institutions can dedicate the necessary resources more efficiently and effectively to meet immediate deadlines.

Clear ownership – both centrally and within local subsidiaries

FATCA is a strategic issue for the business, requiring significant and widespread change. Typically it starts as a ‘tax issue’ but execution has impacts across IT, AML/KYC, operations, sales, distribution and client relationship management. It is imperative to get the right stakeholders and support onboard to ensure that the operational changes are being coordinated, managed and implemented by the necessary multidisciplinary teams across the organization. These include business operations, IT, marketing, and legal and compliance, to name but a few. Early involvement and clear ownership is key from the start.

Understand your footprint in Africa

Many African financial institutions have operations in various African countries and even overseas, and have strategically chosen to make further investments throughout Africa. The degree to which these African countries have exposure to the FATCA regulations needs to be understood. It is best to quickly engage with appropriate stakeholders, understand how FATCA impacts these African countries and the financial institutions’ foreign subsidiaries, and find solutions that enable pragmatic compliance.

What next for financial institutions in Africa?

Negotiations with the U.S. are under way with over 60 countries to enshrine FATCA in national law of countries around the world via IGAs. Implementation of FATCA is approaching on 1 January 2014 and many local financial institutions have either not started or are just at the early stages of addressing the potential impact of FATCA. In South Africa, only few of the leading banks are completing impact assessments and already optimizing solutions. Other financial services groups and asset management institutions are in the process of tackling the impact assessment. Industry representative in Ghana, Kenya, Mauritius, Namibia, Nigeria and Zimbabwe have started engaging relevant government and industry stakeholders, but the awareness is seemingly oblivious to date. In the rest of Africa, FATCA is mainly unheard of.

Financial institutions choosing to comply with FATCA will first need to appoint a responsible officer for FATCA and register with the IRS, ensure proper new client on-boarding procedures are in place, then identify and categorize all customers, and eventually report U.S. persons to the IRS (or local tax authorities in IGA jurisdictions). Institutions will also need to consider implementing a host of other time-consuming operational tasks, including revamping certain electronic systems to capture applicable accountholder information and/or to accommodate the new reporting and withholding requirements, enhancing customer on-boarding processes, and educating both customers and staff on the new regulations. Where possible, institutions should seek to achieve these tasks through enhancing existing initiations so as to minimise the cost and disruption to the business.

Conclusion

Financial institutions in Africa face tight FATCA compliance timelines with limited budgets, resources, time, and expertise available. This is coupled with having to fulfil multiple other regulatory requirements. To add to the burden, FATCA has given stimulus to several countries in the European Union to start discussing a multilateral effort against tax evasion. The support of other countries in the IGA process indicates that some of these countries will follow with their own FATCA-equivalent legislation in an attempt to increase local tax revenues at a time when economies around the world are under unprecedented pressure. The best approach for African financial services industry groups is to engage their local governments in dialogue with the IRS and Treasury, while for African financial institutions to pro-actively assess their FATCA strategic and operational burdens as they inevitably prepare for compliance.

 

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

The Ernst & Young Africa Sub-Area consists of practices in 28 countries across the African continent. We pride ourselves in our integrated operating model which enables us to serve our clients on a seamless basis across the continent, as well as across the world.

Ernst & Young South Africa has a Level two, AAA B-BBEE rating. As a recognised value adding enterprise, our clients are able to claim B-BBEE recognition of 156.25%.

Ernst & Young refers to the global organisation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. All Ernst & Young practices in the Africa Sub Area are members of Ernst & Young Africa Limited (NPC). Ernst & Young Africa Limited (NPC) in turn is a member firm of Ernst & Young Global Limited, a UK company limited by guarantee. Neither Ernst & Young Global Limited nor Ernst & Young Limited (NPC) provides services to clients.

For more information about our organisation, please visit www.ey.com/za

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Fi Istanbul’s Success Demonstrates Unlimited Market Opportunities in Turkey, the Middle East & North Africa

Posted on 18 May 2013 by Africa Business

Staggering 3,000 Visitors + 150 Exhibiting Brands and Record Re-Booking Volumes for the 2014 Event

Yes, we’ve got a lot to shout about and so we would like to start with a huge thank you to all of our exhibitors who helped to make Food ingredients Istanbul such a great success. As the only dedicated food ingredients event in the region, last week’s highly successful show demonstrates that this region is thriving and thirsty for the very latest ingredients, solutions, innovations and networking opportunities.

We are delighted to announce that Food ingredients Istanbul exceeded all forecasts and expectations with the impressive amount of 3,000 visitors and a 94% rebooking rate. As a launch event, Fi Istanbul welcomed attendees from over 80 different countries, filling all aisles and bustling exhibitor stands.

It is clear that the industry responded well to this launch event. Building on the high growth rates that the food industry is experiencing in this region, Fi Istanbul provided a strong platform for all food and beverage manufacturers to source from over 150 local, regional and international food ingredients suppliers.

The response from the exhibitors was overwhelming! Many claimed to have had one of the best shows ever, with a high quality of visitors, a steady flow of traffic during the 3 days and a good mix of visiting companies, including food manufacturers from dairy, ice cream, confectionary, meat, poultry and many more.

Turkey, for a global company, is a very important market for us to be close to our customers. Food ingredients Istanbul has been a great experience to meet new customers in 3 days and share projects, prototypes, concepts and innovations” Luis Fernandez , Vice-President Global Applications, Tate & Lyle

Natasha Berrow , UBM’s Brand Director, also commented, “Last week’s event really did surpass even our expectations! The positive response to this launch event, the new Fi branding and signage provided the innovative environment that such a growing region deserves.”

She continued “the record re-bookings are further indication that exhibitors see Fi Istanbul as the place to continue to meet their customers and to expand into this booming region. I’d like to express our appreciation for the tremendous and ongoing support of all our customers.”

“We are very impressed by the quality of visitors; quality is more important than quantity. We found a lot of good customers that we’ll probably start new business with” Stella Wu , International Sales Manager, JK Sucralose

Visitor feedback also surpassed all expectations. The great mix of local, regional and international food ingredients suppliers was complimented by many attendees looking to source new ingredients from companies they never heard of.

“I want to know new suppliers and I want to see some different varieties of products that I can use for my customers. This is the first year for this exhibition and it feels like it has being a successful opening and I’m sure it will get greater and bigger in the coming years.” Meleknur Tuzun, Sales Manager, Agrana

Fi Istanbul is a key part of the Food ingredients Global Portfolio strategy to extend the its brand into new regions, offering exhibiting clients a platform to engage with new customers and present their new business growth opportunities. With the key focus on business development, innovation and trade, in a region with one of the fastest economic growth rates in the world, Fi Istanbul proved to be one of the most cost-effective platforms to source new ingredients, grow market share and act as a stepping stone to this vastly and yet close to untouched food industry.

 

About Fi ingredients Global – the trusted route to market since 1986

Food ingredients first launched in Utrecht, The Netherlands in 1986 and its portfolio of live events, publications, extensive database, digital solutions and high-level conferences are now established across the globe to provide regional and a global meeting place for all stakeholders in the food ingredients industry. Over 500,000 people have attended our shows over the years, and billions of Euros of business have been created as a result. With over 25 years of excellence, our events, digital solutions and supporting products deliver a proven route to market with a truly global audience.

About UBM Istanbul

UBM Istanbul was established in April 2012 to connect people and create opportunities for companies wishing to build business between Europe and Asia, meet customers, launch new products, promote their brands and expand their markets. Premier brands such as Fi Europe, CPhI, IFSEC, Black Hat, Mother & Baby Show , Jewellery and many others and will become an integral part of the marketing plans of companies across more than 10 industry sectors.

About UBM

UBM plc is a global events-led marketing services and communications company. We help businesses do business, bringing the world’s buyers and sellers together at events and online, as well as producing and distributing specialist content and news. Our 5,500 staff in more than 30 countries are organised into specialist teams which serve commercial and professional communities, helping them to do business and their markets to work effectively and efficiently.

For more information, go to http://www.ubm.com

SOURCE UBM Live

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2013 Pick n Pay Knysna Oyster Festival Programme full of New Highlights

Posted on 18 May 2013 by Africa Business

The programme for the 2013 Pick n Pay Knysna Oyster Festival is growing, with new and exciting events joining the stable of old favourites. “Last year’s programme sported more than 100 events,” said Festival Manager Nicci Rousseau-Schmidt. “And it is already clear that we’ll top that number this year.”

The Pick n Pay Women’s Walk will take place on Sunday 7 July. The Women’s Walk is a popular event that takes place across South Africa. Bronwen Rohland Marketing Director Pick n Pay said, “This 5km event raises funds for PinkDrive, an organisation that provides free breast cancer screening and health education for women who cannot afford it.”

The Young Oyster Festival is gaining in popularity each year, providing an environment for kids to have a blast. Aside from the regular events such as cooking lessons, arts and crafts, movie screenings, sport clinics, and exciting competitions, this year will see a dedicated Kids Zone complete with popcorn, candy floss and all things necessary for exciting and entertaining kids.

“Older kids will enjoy an all-new fun fair as well as obstacle courses and exciting events and competitions at The Yard, our local skate park,” Rousseau-Schmidt said. “This age group and their parents will also enjoy an all new 10-day local food and craft market at the main venue on Waterfront Drive and details of how to enter the Miss Knysna Oyster Festival will be available soon.”

“Of course we wouldn’t have a festival if it weren’t for our oysters. This year’s Pick n Pay Flavours of Knysna will truly showcase Knysna’s restaurants as they once again prepare oysters according to their own, unique recipes, with other delectable treats prepared by Pick n Pay also available on the evening.

“The oyster shucking and oyster eating competitions are always very entertaining and well attended, and this year we will combine these two fun events to both take place at the main venue on Waterfront Drive,” Rousseau-Schmidt said.

The festival has a longstanding relationship with the South African Navy, especially the local Sea Cadet unit from the Training Ship Knysna. “The Admiral’s Ball is a firm favourite on the festival’s calendar with music provided by the incredibly talented SA Navy Dance Band. Presented in co-operation with the Knysna Featherbed Company, the 2013 ball promises to be an event not to be missed,” said Rousseau-Schmidt “We are hoping to welcome two naval ships through the Knysna Heads this year – weather permitting,” she said. “The Navy also presents other fantastic events on the festival calendar, including the Right of Entry Parade which incorporates precision drilling and music from the marching band, displays by the Knysna Sea Cadets and the ever popular concert by the SA Navy Band which unofficially closes the festival.”

“This year the Knysna Forest Marathon and Half Marathon have already sold out, and we anticipate that Knysna will be buzzing with excitement,” said Rohland, “the festival is a great opportunity for us to meet our customers and be part of an event that showcases the best the region has to offer.”

“We are looking forward to old favourites such the Pick n Pay Weekend Argus Rotary Knysna Cycle Tour and the Pick n Pay Cape Times Knysna Forest Marathon and Half Marathon, but we have many exciting developments on the programme to look forward to,” Rousseau-Schmidt concluded. “And what you’ve read about here is only a taste of what the 2013 Pick n Pay Knysna Oyster Festival has on offer. Knysna is truly the place to be during the school holidays. So come along – I can guarantee that you’ll have the best ten days of your winter.”

Keep an eye on www.pnpoysterfestival.co.za for regular updates to the programme, or contact Knysna Tourism on 044 382 5510 for more information.

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ACT hosted visionary leadership

Posted on 18 May 2013 by Thandisizwe Mgudlwa

Thandisizwe Mgudlwa

“It is only through collaboration between education, innovation and business that we will be able to take our country forward and make Cape Town a global African city of inspiration and innovation.”

So said Chris Whelan, CEO of business think-tank Accelerate Cape Town, at Friday’s Accelerate Cape Town Member’s Meeting sponsored by Deloitte. Whelan, who heads up the business organisation that counts more than 45 of South Africa’s largest corporates among its members, added that it is critical that innovation is approached as a collaborative effort. “Whether we’re developing a new product or building a future society, the key to unlocking our success as a city and country is innovation and partnership.”

According to the AC, TWhelan was joined by Dr Vincent Maphai, a business leader  and former Chairman of BHP Billiton Southern Africa. Maphai who also acts as the Education Commissioner on the National Planning Commission, detailed the key requirements for growing talent in the country in terms of what inspired the thinking of the NPC.

Maphai said that in democracies, the government is a reflection of its society. “If we are unhappy about our government’s actions, we must remember that we as civil society elected them to their positions of power. For us to succeed as a nation and be able to become the shapers of our future, we need to step up and start taking our role in the country very seriously.”

He added that active citizenry should be combined with strong leadership in order to create a government that is able to take decisions that they can also implement. “Madiba is a perfect example. His views were not based on scoring political points or promoting his own interests, but rather on what is best for the country as a whole.” Challenge of job creation and lack of education.

Maphai said that the NPC is faced with a massive dual challenge of creating jobs while also overcoming the struggling education system. He stated that while he’s in favour of the current Outcome Based Education system, the country is in dire need of well-trained, committed teachers.

“We don’t have enough skilled workers in the country, and the skills that are available come with a hefty price tag. Until we attend to the mess in education, we can forget about dealing with the issues of inequality that the unions keep talking about.”

According to Maphai, there are ways in which to bring positive change to the country. “If you’re a major company like SAB, you are fortunate enough to have a strong supply chain that enables you to train people and empower them to come and work for you. This is one contribution to addressing the disaster we are facing of a shrinking tax base and growing social grants handouts. But we should also look at requiring the individuals who receive social grants to run the gardens and bake bread in schools and then utilise the money allocated to school feeding on more important items.

“In this country, we don’t need more money or resources, of which we have more than enough. Instead, we need greater resourcefulness, especially in the form of political and social innovation.”

Maphai was joined by Dr Julius Akinyemi, head of the MIT Media Laboratory and chief adjudicator of the Innovation Prize for Africa. Akinyemi said that the mission for schools is to educate students and create new capabilities, but added that most schools fail woefully on the latter aspect. “Innovation is the enabler for creating new capabilities, allowing you to make a social impact by improving efficiencies in the environment or the lives of individuals. This focus on innovation creates an entrepreneurial environment that is very nurturing and empowering to people, leading the creation of businesses, jobs and an environment that enables us to move forward.”

He said that, in terms of the state of innovation in Africa, the problem lies not with a lack of innovation but rather in creating a nurturing environment that allows innovators to be productive. “Businesses have an important role to play. Joint innovative development, for example, creates an opportunity for the research and development team to collaborate and work side by side with businesses, incubators and venture funds in a highly productive environment. A perfect example of this model in action is Workshop 17, the University of Cape Town Graduate School of Business innovation hub based at the V&A Waterfront.”

Akinyemi added that innovation should not stop after the first positive result has been achieved. “Through constant innovation you are able to find out more about your company – what works and what doesn’t. This re-innovation process creates jobs as well as a nurturing environment and better profitability.”

In conclusionACT and Whelan said that determining the strategy, plan and call to action around fostering a culture of innovation in Cape Town will be a key point on his organisation’s agenda going forward. “We need an active citizenry and a strong government and business sector driven by innovation and partnership to further progress this city and truly achieve our objective of making Cape Town a world class destination for talented people to work and live in.”

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The Global Armored and Counter IED Vehicles Market 2013-2023 – Market Size and Drivers: Market Profile

Posted on 16 May 2013 by Africa Business

NEW YORK, May 16, 2013 /PRNewswire/ — Reportlinker.com announces that a new market research report is available in its catalogue:

The Global Armored and Counter IED Vehicles Market 2013-2023 – Market Size and Drivers: Market Profile

http://www.reportlinker.com/p01182628/The-Global-Armored-and-Counter-IED-Vehicles–Market-2013-2023—Market-Size-and-Drivers-Market-Profile.html#utm_source=prnewswire&utm_medium=pr&utm_campaign=Aerospace_and_Defense

Synopsis

This report provides readers with a comprehensive analysis of the Armored and Counter IED Vehicles market through 2013-2023, including highlights of the demand drivers and growth stimulators for Armored and Counter IED Vehicles. It also provides an insight on the spending pattern and modernization pattern in different regions around the world.

Summary

The global armored and counter IED vehicles market valued US$23.4 billion in 2013, and will increase at a CAGR of 2% during the forecast period, to reach US$28.7 billion by 2023. The market consists of six categories: APCs, LMVs, IFVs, MRAPs, MBTs and Tactical Trucks. The IFV segment is expected to account for 34% of the global armored and counter IED vehicles market, followed by the MBT segment with a share of 26.2%.

Reasons To Buy

“The Global Armored and Counter IED Vehicles Market 2013-2023 – Market Size and Drivers: Market Profile” allows you to:

- Gain insight into the Armored and Counter IED Vehicles market with current and forecast market values.- Understand the key drivers and attractiveness parameters of the global Armored and Counter IED Vehicles market.- Understand the various factors impacting the growth of the Armored and Counter IED Vehicles market.

Table of Contents 1 Introduction

1.1 What is this Report About?

1.2 Definitions

1.3 Summary Methodology

1.4 About Strategic Defence Intelligence

2 Global Armored and Counter IED Vehicles Market Size and Drivers

2.1 Armored and Counter IED Vehicles Market Size and Forecast 2013-2023

2.1.1 Global armored and Counter IED vehicles market expected to increase during the forecast period

2.2 Global Armored and Counter IED Vehicles Market – Regional Analysis

2.2.1 North America is expected to lead the global Armored and Counter IED vehicles market

2.2.2 New programs in armored vehicles in the US to support the global armored and counter IED vehicles market

2.2.3 Armored and counter IED vehicles market to be robust in Europe

2.2.4 Asia to be a lucrative market for armored and counter IED vehicles

2.2.5 Saudi Arabia and Israel expected to lead the armored and counter IED vehicles market in the Middle East

2.2.6 Demand for armored and counter IED vehicles in Africa is expected to reach US$910 million by 2023

2.2.7 Brazil to lead the armored and counter IED vehicles sector in the Latin American region

2.3 Armored and Counter IED vehicles Sub-Sector Market Size Composition

2.3.1 Infantry Fighting Vehicles and Main Battle Tanks to witness strong demand

2.3.2 IFVs to account for the highest expenditure in the global armored and counter IED vehicles market

2.3.3 Market size of Main Battle Tanks expected to grow at a CAGR of 4.1% during forecast period

2.3.4 Armored Personnel Carriers market to experience a marginal decline

2.3.5 Scheduled withdrawal of peacekeeping forces and integration of anti-mine armors on all vehicles to lower MRAP vehicle market

2.3.6 Light Multirole Vehicles market size is expected to decline during the forecast period

2.3.7 Tactical trucks market size expected to witness steady decrease in demand

2.4 Demand Drivers and Growth Stimulators

2.4.1 International peacekeeping missions expected to propel demand for armored and counter IED vehicles

2.4.2 Modernization initiatives will drive the demand for armored and counter IED vehicles

2.4.3 Internal and external security threats fuel the global demand for armored and counter IED vehicles

2.4.4 Increasing costs and capability of armored and counter IED vehicles result in demand for multirole vehicles

2.5 Defense Budget Spending Review

2.5.1 European capital expenditure expected to increase during the forecast period

2.5.2 Asian defense budgets expected to increase at a robust pace

2.5.3 North American defense expenditure projected to decline marginally during the forecast period

2.5.4 Modernization programs likely to drive defense expenditure in South American countries

2.5.5 Military budgets of African countries expected to increase during the forecast period

2.5.6 Defense budgets of Middle Eastern countries likely to increase during the forecast period

2.6 Defense Modernization Review

2.6.1 Debt crisis in Europe leading to postponement of modernization plans

2.6.2 Arms race in Asia reflected in modernization plans

2.6.3 North American modernization plans marginally affected by economic recession

2.6.4 Modernization programs in South America driven by replacement of obsolete armaments

2.6.5 African countries mainly spending on infantry weapons and surveillance and monitoring equipment to slow growing crime rate

2.6.6 Middle Eastern countries pursuing modernization of air force and air defense systems

3 Appendix

3.1 Methodology

3.2 About SDI

3.3 Disclaimer

List of Tables Table 1: Global Armored and Counter IED Vehicles Market Overview

Table 2: Global Armored and Counter IED Vehicles Market Overview

List of Figures Figure 1: Global Armored and Counter IED Vehicles Market (US$ Billion), 2013-2023

Figure 2: Armored and Counter IED Vehicles Market Breakdown by Region (%), 2013-2023

Figure 3: North American Armored and Counter IED Vehicles Market (US$ Billion), 2013-2023

Figure 4: European Armored and Counter IED Vehicles Market (US$ Million), 2013-2023

Figure 5: Asia-Pacific Armored and Counter IED Vehicles Market (US$ Million), 2013-2023

Figure 6: Middle East Armored and Counter IED Vehicles Market (US$ Million), 2013-2023

Figure 7: African Armored and Counter IED Vehicles Market (US$ Million), 2013-2023

Figure 8: Latin American Armored and Counter IED Vehicles Market (US$ Million), 2013-2023

Figure 9: Armored and Counter IED Vehicles Market Breakdown by Segment (%), 2013-2023

Figure 10: Global IFV Market Size (US$ Billion), 2013-2023

Figure 11: Global MBT Market Size (US$ Billion), 2013-2023

Figure 12: Global APC Market Size (US$ Billion), 2013-2023

Figure 13: Global MRAP Market Size (US$ Billion), 2013-2023

Figure 14: Global LMV Market Size (US$ Billion), 2013-2023

Figure 15: Global Tactical Truck Market Size (US$ Billion), 2013-2023

Figure 16: Defense Capital Expenditure of Top Three European Defense Spenders (US$ Billion), 2013-2023

Figure 17: Defense Capital Expenditure of Top Three Asian Defense Spenders (US$ Billion), 2013-2023

Figure 18: Defense Capital Expenditure of Top North American Defense Spenders (US$ Billion), 2013-2023

Figure 19: Defense Capital Expenditure of Top Three South American Defense Spenders (US$ Billion), 2013-2023

Figure 20: Defense Capital Expenditure of Top Three African Countries (US$ Billion), 2013-2023

Figure 21: Defense Capital Expenditure of Top Three Middle Eastern Defense Spenders (US$ Billion), 2013-2023

To order this report:Aerospace_and_Defense Industry: The Global Armored and Counter IED Vehicles Market 2013-2023 – Market Size and Drivers: Market Profile

Contact Clare: clare@reportlinker.com

US:(339) 368 6001

Intl:+1 339 368 6001

 

SOURCE Reportlinker

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IFC to Support Central Bank of Nigeria in Strengthening Sustainable Banking

Posted on 15 May 2013 by Africa Business

About IFC

 

IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. In FY12, our investments reached an all-time high of more than $20 billion, leveraging the power of the private sector to create jobs, spark innovation, and tackle the world’s most pressing development challenges. For more information, visit http://www.ifc.org.

 

 

ABUJA, Nigeria, May 15, 2013/African Press Organization (APO)/ IFC, a member of the World Bank Group, today signed an agreement with the Central Bank of Nigeria to support the implementation of standards, policies and guidelines for environmental and social best practices in the Nigerian banking sector, with the aim of promoting sustainable and inclusive growth of the Nigerian economy.

 

 

As part of the agreement IFC will train Central Bank staff on how to supervise the financial sector in the implementation of the Nigerian Sustainable Banking Principles and Sector Guidelines, passed by the Central Bank of Nigeria in July 2012 and signed by all Nigerian banks.

 

 

The Nigerian Sustainable Banking Principles include commitments by the signatories to integrate environmental and social considerations into business activities, respect human rights, promote women’s economic empowerment, and promote financial inclusion by reaching out to communities that traditionally have had limited or no access to the formal financial sector.

 

 

Aisha Mahmood, Sustainability Advisor to the Governor of the Central Bank of Nigeria, said, “Working with IFC will help us further develop existing practices and capacities on environmental and social risk management among financial institutions. As regulators of the Nigerian financial sector, we recognize that financial institutions are key drivers in supporting sustainable economic growth.”

 

 

The partnership with the Central Bank of Nigeria is part of IFC’s Environmental Performance and Market Development Program, which aims to encourage sustainable lending standards among financial institutions in Sub-Saharan Africa and to promote environmental and social standards at a market level.

 

 

Solomon Adegbie-Quaynor, IFC Country Manager for Nigeria, said, “Sustainable business practices are important to financial institutions as they effectively add value both to the banking sector and to the general economy. We will support the Central Bank of Nigeria in this key initiative by sharing knowledge and technical resources.”

 

 

IFC is a leading investor in Sub-Saharan Africa and Nigeria, with a fast-growing, well-performing portfolio. IFC’s portfolio in Nigeria stands at $1.1 billion, the largest country portfolio in Africa and the eighth-largest globally.

 

 

SOURCE

International Finance Corporation (IFC) – The World Bank

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SA ECONOMIC GROWTH HIT BY MINING SECTOR

Posted on 14 May 2013 by Africa Business

Will the Chinese purchase divested mining interests?

South Africa’s economic growth is lagging somewhat behind that of its peers in the developing world. IMF forecasts for 2013 indicate that emerging and developing economies will grow by 5,5% while SA’s GDP is expected to grow between 2,5% and 3%.

Global ranking

Country Name

GDP in Millions of US dollars (2011)

27

South Africa

408,237

39

Nigeria

243,986

60

Angola

104,332

88

Kenya

33,621

105

Zambia

19,206

One of the key reasons for slower growth is SA’s foreign trade structure and reliance on Europe. President Zuma used the opportunity at the World Economic Forum in Davos earlier this year to ensure foreign investors that South Africa is on the right track.

2012 will be remembered for the negative impact of labour unrest and resultant production stoppages in the mining sector. Mining reduced GDP by 0,5% in the first three quarters of the year. This excludes the biggest slump in the sector during the fourth quarter 2012.

Other significant features of the growth slowdown in 2012 were the slowdown in household consumption spending, poor growth in private fixed investment spending and a slump in real export growth.

South African’s inflation rate slowed to a five-month low in January 2013 after the statistics office adjusted the consumer price basket while food and fuel prices eased. In December, the inflation rate fell to 5,4% from 5,7% Statistics South Africa stated.

Government cut the price of fuel by 1,2% in January 2013, as a stronger rand in the previous month helped to curb import costs. Since then, the currency has plunged 4,8% against the dollar and fuel prices are on the rise, with prices increasing in March by a further 8%, adding to pressure on inflation.

South Africa’s strengths

· South Africa is the economic powerhouse of Africa, leading the continent in industrial output and mineral production, generating a large portion of the continent’s electricity.

· The economy of South Africa is the largest in Africa, accounting for 24% of the continent’s GDP in terms of PPP, and is ranked as an upper-middle income economy by the world bank.

· The country has abundant natural resources, well developed financial, legal and transport sectors, a stock exchange ranked amongst the top 20 in the world, as well as a modern infrastructure supporting efficient distribution of goods throughout the Southern African region.

South Africa’s weaknesses

· South Africa suffers from a relatively heavy regulation burden when compared to most developed countries.

· Increasing costs for corporates with rising wages.

· Poverty, inequalities sources of social risk mixed with high unemployment and shortage of qualified labour.

Mining

Output in the mining sector remained weak in December with total mining production down by 7,5% y-o-y after falling by a revised 3,8% (previously -4,5%) in November. On a monthly basis production rose by a seasonally adjusted 1,2% compared with 12,0% in November. Non-gold output was down by 5,0% y-o-y, while gold production slumped by 21,2% in December. For the fourth quarter, total mining production fell by a seasonally-adjusted and annualised 4,6% q-o-q as output of most minerals dropped.

For 2012 as a whole, mining volumes fell by 3,1% after contracting by 0,9% in 2011. Mineral sales were down by 15,6% y-o-y in November after falling 13,7% in October. On a monthly basis sales rose by a seasonally-adjusted 2,3% in November, but sales were down by a seasonally-adjusted 10,2% in the three months to November after declining by 6,8% in the same period to October. These figures indicate that the mining sector is still reeling from the devastating effects of widespread labour strikes in the third and early fourth quarters.

Prospects for the mining sector remain dim as the industry faces headwinds both on the global and domestic fronts. Globally, commodity prices are not likely to make significant gains as demand conditions remain relatively unfavourable. Locally, tough operating conditions persist. Rapidly rising production costs, mainly energy and labour costs, are likely to compel mining companies to scale back operations or even halt them in some cases.

This will have a negative impact on production, with any improvements coming mainly from a normalisation of output should strike activity ease. These numbers, together with other recent releases, suggest that GDP growth for the fourth quarter was around 2,0%, with overall growth of 2,5% for the year as a whole. Overall economic activity in the sector therefore remains generally sluggish while upside risks to inflation have increased due to the weaker rand.

Retail

Annual growth in retail sales slowed to 2,3% in December from 3,6% in the previous month. Over the month, sales rose by a seasonally-adjusted 1,0%, causing sales for the last quarter of 2012 to decline by 0,2% following 2,1% growth in the third quarter.

As a whole, 2012 retail sales rose by 4,3%, slightly down from 5,9% in 2011. Consumer spending is likely to moderate during 2013 as weak consumer confidence, heightened worries about job security and high debt, make consumers more cautious about spending on non-essential items. The overall economic outlook remains weak and fragile, while inflation may increase due to the weaker rand.

Manufacturing

Annual growth in manufacturing production slowed to 2,0% in December 2012 from 3,7% in the previous month, versus the consensus forecast of 2,9%. The increase in output was recorded in seven of the ten major categories. Significant contributions came from petroleum, chemical products, rubber and plastic products. Over the month, total production fell by 2,2% on a seasonally adjusted basis following a 2,6% rise in November.

On a quarterly basis, however, production improved by 1,6% in the final quarter of 2012 following two quarters of weaker growth. Both local and international economic conditions are expected to improve only moderately during 2013. A weak Eurozone will continue to hurt the large export-orientated industries.

The recent recovery in infrastructure spending by the public sector will probably support the industries producing capital goods and other inputs for local projects. But the growth rate will be contained by slower capital expenditure by the private sector in response to the bleaker economic environment both locally and internationally.

Therefore, while a moderate recovery in manufacturing production will continue in 2013, no impressive upward momentum is expected. Overall economic activity remains generally sluggish while upside risks to inflation have increased due to a weaker rand.

Infrastructure

A new economic plan, the National Development Plan (NDP), is likely to be adopted in 2013 promoting low taxation for businesses and imposing less stringent employment requirements. This a measure that the ANC is pursuing ahead of the 2014 national elections. The NDP will encourage partnerships between government and the private sector, creating opportunities in petrochemical industries, metal-working and refining, as well as development of power stations.

Construction companies are especially likely to benefit from government plans to invest $112-billion from 2013 in the expansion of infrastructure as part of the NDP. Some 18 strategic projects will be launched to expand transport, power and water, medical and educational infrastructure in some of the country’s least developed areas.

Energy companies will also benefit, following the lifting of a moratorium on licences for shale gas development. Meanwhile, there will be significant opportunities, especially for Chinese state-owned enterprises that have recently made high-profile visits to South Africa, to acquire divested assets in the platinum and gold mining sector as large mining houses withdraw from South Africa.

According to government reports, the South African government will have spent R860-billion on new infrastructure projects in South Africa between 2009 and March 2013. In the energy sector, Eskom had put in place 675 kilometers of electricity transmission lines in 2012, to connect fast-growing economic centers and also to bring power to rural areas. More than 200 000 new households were connected to the national electricity grid in 2012. Construction work is also taking place in five cities including Cape Town, Port Elizabeth, Rustenburg, Durban and Pretoria to integrate different modes of transport.

Business Climate

Due to South Africa’s well-developed and world-class business infrastructure, the country is ranked 35th out of 183 countries in the World Bank and International Finance Corporation’s Doing Business 2012 report, an annual survey that measures the time, cost and hassle for businesses to comply with legal and administrative requirements. South Africa was ranked above developed countries such as Spain (44) and Luxembourg (50), as well as major developing economies such as Mexico (53), China (91), Russia (120), India (132) and Brazil (126).

The report found South Africa ranked first for ease of obtaining credit. This was based on depth of information and a reliable legal system.

Foreign trade

SA’s trade deficit narrowed to R 2,7-billion in December from R7,9-billion in November on account of seasonal factors. The trade balance usually records a surplus in December due to a large decline in imports. Exports declined 9,8% over the month. The decrease was mainly driven by declines in the exports of base metals. Vehicles, aircraft and vessels (down R1,1-billion), machinery and electrical appliances (down R0,9-billion) and prepared foodstuffs, beverages and tobacco (down 0,8-billion). Imports dropped 15,8% m-o-m.

Declines in the imports of machinery and electrical appliances (down R3,3-billion), original equipment components; (R1,8-billion), products of the chemicals or allied industries (R1,5-billion) and base metals and articles thereof (R1,2-billion) were the main drivers of the drop.

The large trade deficit for 2012 is one of the major reasons for the deterioration in the 2012 current account deficit forecast to 6,2% of GDP from 3,3% in 2011. South Africa’s trade performance will remain weak in the coming months on the back of unfavourable global conditions and domestic supply disruptions. Weak global economic conditions will continue to influence exports and growth domestically.

Skills and education

The need to transform South Africa’s education system has become ever more urgent, especially given the service delivery issues that have plagued the system. While government continues to allocate a significant amount of its budget to education (approximately 20%), it has not been enough to transform the schooling system. Coface expects the government to continue to support this critical sector, but that an opportunistic private sector will take advantage of government inefficiencies.

South Africa’s education levels are quite low compared to other developed and developing nations. South Africa began restructuring its higher education system in 2003 to widen access to tertiary education and reset the priorities of the old apartheid-based system. Smaller universities and technikons (polytechnics) were incorporated into larger institutions to form comprehensive universities.

Debt

The total number of civil judgments recorded for debt in South Africa fell by 9,8% year on year in November 2012 to 35 268, according to data released by Statistics South Africa. The total number of civil judgments recorded for debt decreased by 15,2% in three months ended November 2012 compared with the three months ended November 2011.

The number of civil summonses issued for debt fell 23,9% year-on-year to 70 537. During November, the 35 268 civil judgments for debt amounted to R414,1-million, with the largest contributors being money lent, with R142,5-million. There was a 21,9% decrease in the total number of civil summonses issued for debt in the three months ended November last year compared with the same period in 2011. A 23,9% y-o-y decrease was recorded in November.

South Africa maintains respectable debt-to-GDP ratios, although these grew to 39% of GDP by end-2012, substantially higher than the 34% for emerging and developing economies as a whole. When Fitch downgraded SA earlier this year, it specifically mentioned concerns about SA’s rising debt-to-GDP ratio, given that the ratio is higher than the country’s peers.

South Africa is uniquely exposed to foreign investor sentiment through the deficit on the current account combined with liquid and deep fixed interest markets. SA’s widening deficit on the current account is a specific factor that concerns the rating agencies and is one of the metrics the agencies will use to assess SA’s sovereign risk in the near future. Further downgrades are the risk – potentially driven by foreign investor sentiment about political risks.

Political landscape

Persistent unemployment, inequality and the mixed results of BEE (Black Economic Empowerment) intended to favour access to economic power by the historically disadvantaged populations have led to disappointment and resentment.

Social unrest is increasing. Recent events weakened the ruling coalition which came under fire for its management of these events. Tensions could intensify in the run up to the 2014 presidential elections. South Africa has a well-developed legal system, but government inefficiency, a shortage of skilled labour, criminality and corruption are crippling the business environment. South Africa also has a high and growing youth unemployment, high levels of visible inequality and government corruption so we would keep an eye on the escalating service delivery protest trends.

Labour force

The unemployment rate fell to 24,9% in the fourth quarter of 2012 from 25,5% in the third quarter, mainly reflecting an increase in the number of discouraged work seekers. Over the quarter, a total of 68 000 jobs were lost while the number discouraged work seekers rose by 87 000. The formal non-agricultural sector lost 52 000 jobs over the quarter, while the informal sector, in contrast, employed 8 000 more people. The breakdown shows that the highest number of jobs were lost in the private households category (48 000), followed by the trade and transport sectors, which shed 41 000 and 18 000 jobs respectively.

The agricultural sector led employment creation over the quarter, adding 24 000 jobs. Both local and international economic conditions are expected to improve only moderately during 2013.

Weak confidence and high wage settlement will make firms more cautious to expand capacity and employ more people this year. Government is likely to be the main driver of employment as it rolls out its infrastructure and job creation plans. The unemployment rate will therefore remain high in the short term.

Although the reduction in the unemployment rate is good news, it mainly reflects the large number of discouraged work seekers. Overall economic activity remains generally sluggish while upside risks to inflation have increased due to a weaker rand. Coface believes that this will persuade the Monetary Policy Committee to keep policy neutral over an extended period, with interest rates remaining unchanged for most of 2013. A reversal in policy easing is likely only late in the year or even in 2014.


 


Issued by:                                                                              Sha-Izwe/CharlesSmithAssoc

ON BEHALF OF:                                                   Coface

FURTHER INFORMATION:                                  Charles Smith

Tel:          (011) 781-6190

Email: charles@csa.co.za

Web:       www.csa.co.za

Media Contact:

Michele FERREIRA /
SENIOR MANAGER: MARKETING AND COMMUNICATION
TEL. : +27 (11) 208 2551  F.: +27 (11) 208 2651   M.: +27 (83) 326 2268
michele_ferreira@cofaceza.com

 

BUILDING D, DRA MINERALS PARK, INYANGA CLOSE

SUNNINGHILL, JOHANNESBURG, SOUTH AFRICA
T. +27 (11) 208 2500 –
www.cofaceza.com

About Coface

The Coface Group, a worldwide leader in credit insurance, offers companies around the globe solutions to protect them against the risk of financial default of their clients, both on the domestic market and for export. In 2012, the Group posted a consolidated turnover of €1.6 billion. 4,400 staff in 66 countries provide a local service worldwide. Each quarter, Coface publishes its assessments of country risk for 158 countries, based on its unique knowledge of companies’ payment behaviour and on the expertise of its 350 underwriters located close to clients and their debtors. In France, Coface manages export public guarantees on behalf of the French state.

Coface is a subsidiary of Natixis. corporate, investment management and specialized financial services arm of Groupe BPCE.. In South Africa, Coface provides credit protection to clients. Coface South Africa is rated AA+ by Global Ratings.

www.cofaceza.com

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Lopatka: “Africa wants closer cooperation with Austria” / State Secretary sets initiatives for economic cooperation and educational projects

Posted on 14 May 2013 by Africa Business

VIENNA, Austria, May 14, 2013/African Press Organization (APO)/ Opportunities for deepening political and economic ties to the African continent were the focus in a meeting of Austrian State Secretary Reinhold Lopatka with 25 ambassadors from African states. The Austrian Development Agency (ADA), the Austrian Development Bank and the Austrian Ministry of Finance (soft loans) are the partners in the Africa initiative, which the Federal Ministry for European and International Affairs has started with the support of the Federal Economic Chamber (WKÖ) and the City of Vienna. The African ambassadors showed great interest in stronger economic cooperation with Austria, including tourism projects and accessing Austrian know-how.

Good prospects exist for strengthening economic cooperation. “We are focussing on the interface between business and development. Africa offers opportunities above all for Austrian exports and we must put these to good use. The prerequisites are favourable: Austria does not have to struggle with the negative effect of a colonial past in Africa. The trust exists for intensifying trade contacts”, the State Secretary said. The priorities for Africa are to be established in coordination between the Foreign Ministry and the Federal Economic Chamber Austria.

“Our Africa initiative comprises three focal areas: The first priority for us is “more trade than aid”, secondly we are offering our support in education and training, as for example in tourism and training for diplomats and thirdly we have set our sights on a closer partnership and cooperation with African partners within the scope of multilateral organisations”, Lopatka continued.

“Austria is training engineers in the erection of solar thermal facilities in South Africa for example, and supporting coffee growers in Tanzania in the production and marketing of top quality coffee. The engineering company Waagner-Biro is building bridges in Mozambique with the help of soft loans and the Schloss Klessheim tourism school offers grants for training places”, the State Secretary said.

“We are also calling for the membership of African states in the International Anti-Corruption Academy and for a further development of cooperation in energy projects. Vienna has been able to develop a strong profile over the past few years as a location of international significance in this field. The new office for the implementation of the UN initiative “Sustainable Energy for All” in Vienna has been added to the many existing facilities of our energy cluster and it is of very high relevance for the African states in particular”, Lopatka said. The African states would be able to represent their interests at the Vienna location even better by establishing an African Union (AU) bureau in Vienna. “We are ready to support the creation of an AU representation office in Vienna with a start-up package and we hope there will soon be a green light for this project from the AU”, the State Secretary concluded.

 

SOURCE

Austria – Ministry of Foreign Affairs

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AfDB Concludes First Pan-African Training for Regulators of Derivatives and Commodities Exchanges

Posted on 14 May 2013 by Africa Business

ABIDJAN, Côte d’Ivoire /African Press Organization (APO)/ The African Development Bank (AfDB) (http://www.afdb.org) on May 10, 2013 concluded a one-week, pan-African training workshop for African regulators of derivatives and commodities exchanges. The training workshop was held in Abidjan, Côte d’Ivoire.

At the opening ceremony, Job Essis N’Guessan, the representative of the Ivoirian Minister of Commerce, stressed the importance of commodities and derivatives markets, especially after the global food crisis of 2007 and the global financial crisis of 2008. He stated that as the environment in Africa is becoming increasingly conducive to investment, there is need to make sure that investor interest translates to an improvement in Africa’s ability to develop itself.

The workshop provided participants representing 30 African countries with strategic and technical skills to assist African securities and capital markets authorities develop legal and regulatory frameworks for derivatives and commodities exchanges.

On behalf of the Official Representation of the AfDB’s Headquarters in Côte d’Ivoire (ROSA), Chief Country Program Officer Sidi Drissi described the training session as being in support of the African Union’s 2005 Arusha Plan of Action and Declaration on African Commodities. The Plan of Action and Declaration highlight the importance of efficient financial and commodity markets as a prerequisite for equitable, inclusive and sustainable development.

“Having well-trained regulators are important for the proper functioning of markets,” he declared.

For participants from Kenya, this training comes at a particularly opportune moment, as the country is poised to license a Futures and Derivatives Exchange by August 2013.

“The training exposed us to other aspects of futures and derivatives regulation that we will be grappling with once the CMA has licensed the successful applicants for establishment of Futures Exchange, notably contract creation, licensing and monitoring of market intermediaries, clearing and settlement and market manipulation,” said Luke Ombara, Acting Director of Regulatory Policy and Strategy at Kenya’s Capital Markets Authority (CMA).

Keith Mukami of Bourse Africa Limited, another participant at the training workshop, described the sort of capacity building that the workshop provides as “the cornerstone to building sustainable and well regulated African commodity markets in the long term.” He finds it very encouraging to “witness and participate in AfDB’s efforts to building African commodity markets.”

The training workshop, the first in a series of trainings on market regulations, was jointly organized by the African Development Institute and the NEPAD, Regional Integration and Trade Department, both of the AfDB.

 

SOURCE

African Development Bank (AfDB)

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AFRICA ATTRACTIVENESS: CONTINENT’S SHARE OF GLOBAL FDI INCREASES

Posted on 13 May 2013 by Amat JENG

 

Africa’s share of global foreign direct investment (FDI) has grown over the past five years highlighting the growing interest from foreign investors, according to Ernst & Young’s third Africa Attractiveness Survey , released yesterday.

The report combines an analysis of international investment into Africa over the past five years with a 2013 survey of over 500 global business leaders about their views on the potential of the African market. The latest data shows that despite a fall in project numbers from 867 in 2011 to 764 in 2012 — in line with the global trend — project numbers are still significantly higher than anything that preceded the peak of 2008. The continent’s global share of FDI has also grown from 3.2% in 2007 to 5.6% in 2012.
Mark Otty, Ernst & Young’s EMEIA Managing Partner comments, “A process of democratization that has taken root across much of the continent; ongoing improvements to the business environment; exponential growth in trade and investment and substantial improvements in the quality of human life have provided a platform for the economic growth that a large number of African economies have experienced over the past decade.”

Despite the impact of the ongoing global economic situation, the size of the African economy has more than tripled since 2000. The outlook also appears positive, with the region as a whole expected to grow by 4% for 2013 and 4.6% for 2014. A number of African economies are predicted to remain among the fastest growing in the world for the foreseeable future.

Eighty-six percent of those with an established presence on the continent believe that Africa’s attractiveness as a place to do business will continue to improve. Those surveyed rank Africa as the second most attractive regional investment destination in the world after Asia.

Increasing investment from emerging markets

Investment in FDI projects from developed markets fell by 20%. Although FDI projects from the UK grew (by 9% year-on-year), those from the US and France — the other two leading developed market investors in Africa — were considerably down. In contrast investments from emerging markets into Africa grew again in 2012, continuing the trend over the past three years.
In the period since 2007, the rate of FDI projects from emerging markets into Africa has grown at a healthy compound rate of over 21%. In comparison investment from developed markets has grown at only 8%. The top contributors from the emerging markets are India (237), South Africa (235), the UAE (210), China (152), Kenya (113), Nigeria (78), Saudi Arabia (56) and South Korea (57) all among the top 20 investors over that period.

Intra-African investment has been particularly impressive during the same period, growing at 33% compound rate. South Africa has been at the forefront of growth in intra-African trade and broader emerging market investment – (the single largest investor in FDI projects in 2012 outside of South Africa.) Kenya and Nigeria have also invested heavily but it is expected that others such as Angola, for example, with a US$5b sovereign wealth fund, will become increasingly prominent investors across the continent over the next few years.

Ajen Sita, Ernst & Young’s Africa Managing Partner comments, “There is a growing confidence and optimism among Africans themselves about the continent’s progress and future.”

AJEN SITA

There has also been an important shift in emphasis in investment into the continent over the past few years, in terms of both destination markets and sectors. While investment into North Africa has largely stagnated, FDI projects into Sub-Saharan Africa have grown at a compound rate of 22% since 2007. Among the star performers attracting growing numbers of projects have been Ghana, Nigeria, Kenya, Tanzania, Zambia Mozambique, Mauritius and South Africa.

Perception versus reality

Our 2013 Africa Attractiveness Survey shows some progress in terms of investor perceptions since the inaugural survey in 2011. The majority of respondents are positive about the progress made and the outlook for Africa. Africa has also gained ground relative to other global regions. In 2011 Africa was only ranked ahead of two other regions, while this year it ranked ahead of five other regions (the former Soviet States, Eastern Europe, Western Europe, the Middle East and Central America).

However, there still remains a stark perception gap between those respondents who are already doing business in Africa versus those that have not yet invested in the continent. Those with an established business in Africa are overwhelmingly positive. They understand the real rather than perceived operational risks, have experienced the progress made and see the opportunities for future growth. Eight-six percent of these business leaders believe that Africa’s attractiveness as a place to do business will continue to improve, and they rank Africa as the second most attractive regional investment destination in the world after Asia.

In contrast, those with no business presence in Africa are far more negative about Africa’s progress and prospects. Only 47% of these respondents believe Africa’s attractiveness will improve over the next three years, and they rank Africa as the least attractive investment destination in the world.
The two fundamental challenges that are present for those already present or those looking to invest in Africa are transport and logistics infrastructure and anti-bribery and corruption. However, moves are being made on both accounts to help allay fears of investors.

Infrastructure gaps, particularly relating to logistics and electricity, are consistently cited as the biggest challenges by those doing business in Africa. At a macro level, too, Africa’s growth will be inherently constrained until the infrastructure deficit is bridged. The flip side of this challenge, however, is that strong growth has been occurring despite such infrastructure constraints. This indicates the potential to not only sustain, but accelerate growth as the gap is narrowed. Our analysis indicates that in 2012 there were over 800 active infrastructure projects across different sectors in Africa, with a combined value in excess of US$700b. The large majority of infrastructure projects are related to power (37%) and transport (41%).

Moving away from extractive industries

Due to volatile nature of commodity prices, an over-dependency on a few key sectors clearly raises questions about the sustainability of growth. Despite perceptions to the contrary, less than one third of Africa’s growth has come from natural resources.

The trend of growing diversification continues, with an ever increasing emphasis on services, manufacturing and infrastructure-related activities. In 2007 extractive industries represented 8% of FDI projects and 26% of capital invested in Africa; in 2012, it was a mere 2% of projects and 12% of capital. In comparison, services accounted for 70% of projects in 2012 (up from 45% in 2007), and manufacturing activities accounted for 43% of capital invested in 2012 (up from 22% in 2007).

Mining and metals is still perceived by survey respondents as the sector with the highest growth potential in Africa, but the number of respondents who believe this (26%) is down from 38% in 2012 and 44% in 2011. In contrast, interest in African infrastructure projects is clearly increasing, with 21% of respondents identifying this as growth sector versus 14% last year and only 4% in 2011. Other sectors where there has been a noticeable shift include ICT (14%, up from 8% last year), financial services (13%, up from 6% last year), and education (which has come from virtually nowhere to register 10% this year).

Mark comments, “These changing perceptions of relative sector attractiveness in Africa reflect the changing fundamentals of many Africa economies: the diversification of both sources of growth (for example, the increasing contribution of services and the growing consumer class), and of the actual FDI flowing into these economies.”

South Africa most attractive for foreign investors but others hot on its heels

The large majority of respondents view South Africa as the most attractive African country in which to do business: 41% of all respondents put South Africa in first place, while 61% included it in their top three. The primary reasons for South Africa’s popularity appear to be it relatively well developed infrastructure, a stable political environment and a relatively large domestic market. The next most popular countries were Morocco (20% placing in the top three, and 8% in first place), Nigeria (also 20% in top three, and 6% in first place), Egypt (15% top three and 5% first), and Kenya (15% top three and 4% first). In general, these rankings align with emerging regional hubs for doing business across different parts of Africa.

Looking ahead

Ajen concludes, “With an increasingly solid foundation of economic, political and social reform, together with resilient growth rates, we are confident that the continent as a whole is on a sustainable upward trajectory. This direction of travel, rather than the current destination, is what is most important.

“A critical mass of African economies will continue on this journey. Despite the fact that there will undoubtedly be bumps in the road, there is a strong probability that a number of these economies will follow the same development paths that some of the Asian and other Rapid Growth Markets have over the past 30 years. By the 2040s, we have no doubt that the likes of Nigeria, Ghana, Angola, Egypt, Kenya, Ethiopia and South Africa will be considered among the growth powerhouses of the global economy.”

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